Could it be that Apple's Market Value could reach an astonishing $4 trillion?
Apple Inc. (AAPL, decreasing by 0.07%) has held the title of the most prized corporation globally for extended periods, although its leadership has been occasionally challenged by Nvidia and Microsoft. Apple's market worth peaked at an astonishing $3.6 trillion, but subsequently retreated to roughly $3.4 trillion.
When a company achieves such immense size and prosperity, speculations about its future development become intensely debated. It hasn't aided the bullish argument for Apple that celebrated investor Warren Buffett has lessened his stake in the organization, although it still remains the premier investment in the Berkshire Hathaway portfolio.
Let's ponder if, and when, Apple might surpass $4 trillion.
Reasons why investors adore Apple
Apple has constructed a distinctive collection of popular gadgets that captivate its admirers. Its devices function seamlessly within an interconnected, harmonious system that fosters loyalty and exclusivity.
For instance, despite the fact that all of the foremost tech companies, along with some upstarts, are boasting about their financial investments in artificial intelligence (AI), Apple possesses an advantage over other hardware competitors due to its users' existing investment and allegiance within its platform. It might also hold an edge because of the loyalty generated by these users: Apple typically incorporates the technology effortlessly. It recently introduced powerful generative AI capabilities on its iPhones, which are fully integrated and simple to install and operate, featuring an upgraded Siri. New capabilities comprise AI-powered image searches and photo editing, and they're the sort of services that a non-Apple user would require to procure from multiple sources or pay for.
Presently, Apple Intelligence is accessible to users with contemporary devices thanks to a free software update, but it will come preinstalled on future iPhone models. Apple is strategically positioned to profit from a comprehensive AI program as well as the organic growth of AI.
Apple has also experienced remarkable success in its service division. Apple Pay and Apple TV are prospering beyond expectations and contributing to the existing mammoth and potent venture.
Venturing into new monetary streams is a crucial strategy for numerous large enterprises, and it's one of the aspects that Buffett has lauded in an excellent organization. Subscription services also generate dependable revenue streams and draw users deeper into the Apple ecosystem. Apple will continue to derive the most significant share of its revenue from iPhone sales, but its various products and services render it a diversified business with increased possibilities.
Targeting new milestones
For Apple to attain a $4 trillion market capitalization, the stock would require a 18% increase from its current level. Can that happen at a swift pace? It has already climbed by 17% this year, with six weeks still left to go.
Revenue grew by 6% year-over-year during the company's fiscal 2024 fourth quarter (which ended Sept. 28) to $95 billion, and analysts expect it to continue expanding at mid-single-digit percentage rates. It's a comparable situation with earnings per share, which are expected to increase at a slow and steady pace. However, these projections may be underestimated, as it remains uncertain how much impact Apple Intelligence will have.
At present growth rates, Apple's market capitalization may surpass $4 trillion as early as next year, provided that its valuations do not wane. However, Apple stock is currently quite expensive. It trades at 37 times trailing 12-month earnings, surpassing its five-year average of 29. Is this premium justified? It may be, as companies of this magnitude and dependability warrant a premium. However, Apple stock has dipped slightly over the past month, and its lofty valuation could mean that it's at risk of additional downturns in the near term.
You might shy away from making Apple the largest investment in your portfolio if you're starting a new position, but it's a reliable candidate for growth and stability, and it provides a steady (albeit below-average) dividend. If you're already an investor, maintain your stance and await its achievement of further milestones.
To further diversify its income streams, Apple is exploring opportunities in subscription services and AI technology, which could potentially drive its market capitalization higher. For instance, the integration of AI capabilities into its devices, such as iPhone's upgraded Siri, increases user engagement and reduces the need for external AI services, potentially offering a competitive edge.
Given Apple's current valuation of 37 times trailing 12-month earnings, achieving a $4 trillion market capitalization would require a significant stock price increase. While Apple's stock has risen by 17% this year, whether it can maintain this momentum and reach this milestone depends on various factors, including market conditions and the impact of its AI and subscription services on revenue growth.
